Titans Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) go head-to-head every day, with Mr. Softy still banging its head against the wall with its Bing search engine that loses billions of dollars per year. Part of Microsoft's strategy is to keep the pressure on Google, with search for example, in an effort to keep Google off their turf.
The results: Google continues to gain market share in everything. From search, from mobile phones, and from tablets. In the near future, I predict that Google will gain much of what remains of the PC market.
In 2011, I spoke with a Microsoft engineer who has been the only person I have ever met to proudly tell me that he thought Bing was superior to Google search. He explained that the two companies had made different bets on the future of computing: Microsoft had bet on mix of accessing data both via the net and on one's own computer/internal hard drive, while Google had predicted that in the future all data would be stored in the cloud and there would be little need to access it on PC hard drives.
For the last two years, I found it very easy to defend Microsoft's position as correct. There are many places where Internet service is not readily available, and if I want to run applications on my PC I need some horsepower and a hard drive. If you asked me last year, I'd have told you I didn't believe I'd ever merely use a Chrome web browser for my computing needs.
My opinion has now changed. Google has implemented a positively brilliant strategy for ubiquitous high speed Internet. In laying out Google Fiber that offers 1GB download speeds in select cities, they are forcing the hand of telecoms around the United States to deploy massive amounts towards new investments in their own infrastructures to stave off the Google threat.
Time Warner Cable (NYSE:TWC) and Verizon Communications (NYSE:VZ) have invested a lot of money in infrastructure in the past, and investors had better prepare for them to invest a substantial amount more. With positive proof that Google is serious about this project, the telecom companies are responding. To stave off competition and keep their customers, Verizon and Time Warner will likely be upgrading, bringing higher speeds and better service to consumers. Time Warner Cable, in fact, recently started a fiber project of its own in New York City that could be contrasted to Google Fiber as a demonstration of Google's successful manipulation via threat to achieve its own objective.
Whatever these companies invest (and it will likely be billions of dollars) will come at an expense to earnings and cash flow, and will likely affect the near-term price of both stocks. However, if you're a long-term investor, should they choose not to invest in keeping their customers to keep short-term profits up in light of the Google threat, there would be no surer sign to sell. Just something to keep in mind.
The future of the United States is 1GB broadband, speeds that absolutely blow away today's services.
Why this matters
Google continues to improve in everything they do. When Chromebooks first arrived in 2011 they were deemed utilitarian, ugly, and doomed to failure by many pundits. My challenge with them was that I hated waiting for communication between the cloud and my PC.
With future 1GB download speeds available for all, this won't be nearly as much as an issue. Yes, the cloud does on occasion go down, but the amount of data being transmitted at that rate and the massive firepower of those humongous servers means you'll likely be able to perform the same functions that you do today nearly seamlessly. Before, this was not the case.
Here's the beauty for the consumer. Chrome is a free operating system. Google collects data off the consumer in a way that no one else but Facebook (NASDAQ:FB) can rival, and makes back its money this way and through your search. Each time you purchase a PC, you are paying a chunk of that to Microsoft for their operating system. In the future, this might be a needless expense.
Furthermore, the public has become trusting of Google via Android, which once again has gained such a tremendous market share because it's free. As Internet connections get faster and faster and machines can access the cloud from more and more locations, Chrome will gain tremendous amount of market share in the PC market and revenues from one of Microsoft's milkiest cash cows will get bludgeoned.
If you agree with my prediction of the future, you'd do best to sell your stock in Mr. Softy at these current highs.
Disclosure: I am long GOOG, MSFT, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.